Interserve challenges MoD's £4bn contract race

Interserve has launched a legal challenge to the award of £4bn worth of defence estate construction contracts to rival Carillion, prompting the Ministry of Defence to suspend the procurement process.

As Building revealed yesterday, the Ministry of Defence’s (MoD) estate arm the Defence Infrastructure Organisation (DIO) has “suspended” the award of three defence estate construction contracts, together worth up to £4.35bn, after the contract award decision was “formally challenged by one of the tenderers”.

The DIO declined to say which firm had launched the legal challenge, but Building now understands that it is Interserve, which was in line for all three of the Next Generation Estates Contracts (NGEC) contracts in three separate joint ventures (see box below).

It is also now understood that a joint venture between Carillion and Amey set to be awarded all three of the contracts, prior to the legal challenge launched by Interserve.

The award of the three disputed NGEC contracts to the Carillion Amey JV would mean the firms will have won five of the six NGEC contracts to be awarded this year – together worth as much as £5.5bn - after already picking up two other NGEC contracts last month, which were worth up to £1.2bn.

Both Carillion and Interserve declined to comment.

The three NGEC contracts in dispute, which were due to be awarded this month, comprise: the £1.8bn Regional Prime Central contract; the £1.35bn Regional Prime South-west contract; the £1.2bn Regional Prime South-east contract.

The contracts are for repairs and maintenance work across the defence estate, as well as facilities management and construction projects worth up to £3.9m.

Procurement on the contracts began February 2012, with the shortlisted contractors announced in June 2012.

The DIO did not say when it now expected the contracts to be awarded, only that an announcement would be made “in due course” and that it was working to “minimise” the delay.

The legal challenge and delay is the latest in a long line of problems to hit the procurement of the MoD’s suite of NGEC contracts.

Last month Carillion’s joint venture with Amey was awarded the £626m National Housing Prime contract as well as the £152m Regional Prime Scotland and Northern Ireland contract, while Interserve’s JV with PAE won the £322m National Training Estate Prime contract.

But these contract awards came after a series of delays, with the MoD extending the procurement process – which had begun in late 2010 and early 2011 - by two years. Earlier this year it again delayed the award of the contracts.

News of the legal challenge emerged after contractor Babcock, which along with Carillion and Interserve was also in the running for all three of the contracts, put out a statement yesterday saying it did not expect to be awarded any of the contracts.

Babcock said it was prompted to issue the statement after a legal challenge - brought by another unnamed contractor - had delayed the announcement of the contract awards.

The firm said: “Following a legal challenge that is delaying the announcement by the DIO of the outcome of Tranche 2 of the NGEC, Babcock has discussed the situation with the DIO and has concluded that Babcock will not be awarded any of the contracts forming part of Tranche 2.”

A DIO spokesperson said: “The award decision for Regional Primes contracts, Central, and South-east and South-west England has been formally challenged by one of the tenderers. As a consequence, contract award has been suspended.

“We are working to resolve the issues raised as quickly as possible to minimise any further delay.”